“Woe to the land whose king is a child and whose leaders are already drunk in the morning. Happy the land whose king is a nobleman, and whose leaders work hard before they feast and drink, and then only to strengthen themselves for the tasks ahead”. (Eccl 10: 16-17)

"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput

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Wednesday, December 5, 2012

Goldman Sach's Right Hand does not Know what its Left Hand is Doing

In an odd piece of news today, Dow Jones is reporting that Goldman Sachs has issued a report stating that gold is "near an inflection point" which is likely to come next year and is "pointed lower after".

I find it odd because the reason that Goldman states this is because it expects an improved US economy that will supposedly blunt safe-haven demand for the metal based on its assumption that REAL interest rates will rise.

It's twelve month forecast for the price of gold is cut to $1800 with its 2014 view of $1750. That is hardly a big letdown but still it begs the question - Is this the same Goldman that just last week issued a report predicting that the Federal Reserve will be forced to implement QE4 at this month's FOMC meeting? You might recall that in that report Goldman predicted a $45 billion/month Treasury buying program to be announced by the Fed based on the fact that the US economy was still sluggish and that growth was lagging. This is of course in addition to the already announced and implemented $40 billion/month of MBS paper by the Fed.

Additionally, in that same report Goldman stated that this bond buying program would continue all the way through 2103. In the year 2014, economic conditions would improve enough that the Fed could ramp down the combined QE3 and QE4 programs to $50 billion/month which would continue into the early part of 2015. They also stated that they believed the Fed would not raise interest rates until 2016.

So which report are we to believe? Where is the rise in REAL interest rates supposed to be coming from? Is it from the Fed which they just last week predicted would not raise rates until 2016? Is it from the Fed which is expressly focusing on keeping LONG TERM interest rates low by embarking on another round of QE for the next 2 1/2 years?

I am merely stating what these two separate reports coming within a week's time frame are saying.

It is obvious that the people within Goldman who prepared the former report were not consulted with by the people who issued today's report. This is perhaps a great way of making sure that no matter what happens, your "team" got it right.

By the way, do you not find it ironic that on the same day that Goldman issues today's report, Fox Business is reporting that both Goldman and JP Morgan are considering layoffs due to the rotten business climate?

What about the flash crash on Tuesday PM? Gold and silver flashed lower and instantly recovered. Was that a signal Dan? Is there any connection to BM being placed in CHARGE OF Regulatory Affairs at JPM last week?

"Blythe Masters to Lead Regulatory Affairs at JPMorgan Chase

November 29, 2012 By The Doc 43 Comments

The face of JP Morgan’s alleged silver manipulation has reportedly been chosen to lead JPM’s regulatory affairs office in addition to her role as head of commodities. Apparently Mr. Dimon feels the need to ensure Bart, Gary, and the rest of the CFTC toe the line regarding the nearly 5 year old investigation of silver manipulation.

Blythe Masters, Head of Global Commodities at JPMorgan Chase, has been given the additional assignment to lead regulatory affairs for the corporate and investment bank."

Mark - I have no idea whether or not that has anything to do with the gold or silver hits. All that i can tell you is that these unusually large sell orders that took the price down were not done so as to maximize the selling price obtained for a good but rather to influence market price action.

The problem with today's markets is that they are EASIER to manipulate than at any other time in market history in my view due to the fact that so few of the large traders are fundamentalists or disgressionary traders. These large traders, which make up the bulk of the market volume have gone over to system trading run by computer algorithms which are deliberately designed to bypass human emotion or decision making. Once a price level is violated which kicks off either the buy or sell side of these algorithms, the rest is automatic. The entity that started the action moving is then free to make a boatload of money as the mindless machines do what they were programmed to do.

Those of us who are disgressionary traders are a vanishing breed but hopefully we can take advantage of the mindless stupidity of the machines and profit accordingly.

Dan,Thank you for your reply. I also noticed, timing wise, that just prior to Judge Robert Wilkins making his ruling about position limits, which is being appealed by the CTFC, the commercial short position has grown on an almost weekly basis.

Dan,I think a better description would be 'Goldman Sachs is talking out of both sides of their mouth'. A company that has its hands firmly throttling the world economy must know what is about. We muppets are supposed to know our place and not ask too many questions, right? :)

There are so many analysts and individuals at Goldman Sachs saying one thing or another at any time, that I don't think it's fair to say "Goldman Sachs said X" anymore. It's a large entity with many voices.

Soros trashed gold when he was going long, I suspect GS is doing the same thing. The GS mindset allows the terms "client" and "victim" to be used interchangeably. We'll soon see if GS is correct regarding the upcoming Fed move but I am certain that the gold forecast is all about getting their "clients" to dump anything gold.

I am still bullish long-term on gold, but the weakness and refusal to bounce out of extreme oversold conditions is a bad sign. My cycles theory tells me $1672 (last intermediate cycle low) needs to hold or I'm going to get out and regroup.

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About Me

Dan Norcini is a professional off-the-floor commodities trader bringing more than 20 years experience in the markets to provide a trader’s insight and commentary on the day’s price action. His editorial contributions and supporting technical analysis charts cover a broad range of tradable entities including the precious metals and foreign exchange markets as well as the broader commodity world. He is a frequent contributor to both Reuters and Dow Jones as a market analyst for the livestock sector and can be on occasion be found as a source in the Wall Street Journal’s commodities section as well as CBS Marketwatch where his views on the gold market can often be found.
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